PEO Or EOR – Choose What’s Best for Your Business

  1. A Quick Recap PEO

A Professional Employer Organization in India is a company that acts as the legal employer for the human workforce it provides to a foreign business wanting to establish its presence in India. Since a foreign businessman cannot legally set up a business in India without triggering an entity formation, a PEO service comes in handy.

Along with the basic legalities of hiring human resources in India, weathered PEO agencies also take over employer responsibilities like payroll processing, employee training, leave tracking, office infrastructure, and HR support.

  • What is EOR?

An Employer of Record works similarly. It puts some part of your employee workforce on its payroll, while the employees still work for you. However, unlike a PEO service, an EOR in India retains the employee contracts, while only engaging with you in terms of service agreements.

The semantic difference may seem small, but legally speaking, it can make all the difference in how you set up and operate your business in India.

There are also other differences that you need to study, to make a data-driven choice between PEO or EOR.

  • Comparing PEO and EOR
    • Mode of Collaboration

When a foreign business collaborates with a PEO service in India, the client organization continues business as usual, and takes over a majority of the employee functions and responsibilities. The professional employer organization undertakes certain HR-related operations, like payroll processing, taxation etc.

The employees consider the PEO agency as their formal, technical employer. All their salary checks and usual employment-related documents still bear the PEO’s name. But the work they do is for the parent organization, often situated abroad.

In short, a PEO follows a co-employment model.

Sometimes, the parent organization may not want to be associated with the agency providing the human workforce beyond the formal transactions. One option is outsourcing, but even that has its drawbacks.

Thus, an employer of record service. An EOR takes over a subset of your workforce and looks after a set of activities as agreed upon by the parent organization and the EOR agency in India. A popular example of the EOR model is seen in HR departments. One business has human resources in its employ who are overseen by another organization (the EOR agency).

The EOR does not work under a co-employment model, but rather assumes responsibility for a category of tasks for a specific set of employees.

  • Minimum Employees Under EOR and PEO

There’s a minimum number of employees that are to be onboarded with PEO, whereas EOR does not have an employee minimum.

Most PEO service providers in India mandate a minimum of 5 – 10 employees while onboarding employee workforce.

EOR is much more lenient. This is because EOR services are contracted for varying, individualized tasks and portions of the team.

Supposing the engaging small business owner is at a very natal stage. They’d have a very small team working in India. With a co-employment model, a PEO would have several (undesirable) administrative activities involved.

An EOR turns out to be a better option in such cases.

  • Registration and Setup of Business in India

A PEO requires your business at least be registered in the state you want to conduct business in. But the business has to be structured a certain way; PEOs cannot engage in sole proprietorships or partnerships. Therefore, you need to register yourself as a company in the target state and city. Just that the PEO takes on the role of the legal employer since you’re abroad.

With EOR, since it is not in co-employment with your organization, you can delegate sections of your team and their associated set of tasks to an EOR any which way.

But if you want to set up full-fledged corporations or LLPs, you may have the necessary requirements and team size to opt for a PEO agency instead.

  • Freedom To Make Impactful Decisions

A PEO has an indirect stake in how well your business does. Although it is just providing human resources, it can decide to change its structure, scope, or pricing for whatever reason. Because your entire workforce is engaged with the professional employer organization and not just a section of it, this may affect your day-to-day operations and even cause business interruptions.

With EOR services, you are a little more eased out, because you can jump back from unexpected changes pretty quickly. The work you delegate to an employer of record service in India is very streamlined and compartmentalized.

  • Choosing between PEO and EOR

Making the choice between PEO or EOR depends entirely on which direction you want to take your business setup in India. If you have enough scale and have long-term business objectives, a PEO organization is the way to go. It will help you like nothing else in expanding your business in India.

But if you have a lot of one-off tasks, not enough of a workforce to think of a PEO, and want to hand off some responsibilities keeping you from your core business, EOR is the way to go. If you are not yet sure how to decide between PEO and EOR, contact us with your queries, and we will provide the best option for you after considering your requirements.